Thursday, September 29, 2022

RBI MPC members feel Indian economy hasn’t bottomed out yet

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New Delhi: The minutes of the meeting from the recent RBI (Reserve Bank of India) MPC (Monetary Policy Committee) meet show that members feel that the Indian economy hasn’t bottomed out yet. The RBI remained concerned about the slow pace of growth in Indian economy amid uncertain macroeconomic data.

‘Downturn in Indian economy not bottoming out’

Deputy Governor Michael Debabrata Patra said that high-frequency indicators were not offering evidence yet that downturn in the Indian economy was bottoming out. Although he did see growth in specific sectors, but they were far from gaining economy-wide traction.

“As foretold in December, the MPC has entered what I call the tunnel of testing trade-offs (TTT),” said Patra, adding that the monetary policy has headroom to respond to the evolving macroeconomic configuration. Wholesale prices-based inflation has touched a 10-month high of 3.10 percent in January and retail inflation has reached a 68-month high of 7.59 percent.

‘Growth prospects have weakened further due to Corona virus outbreak’

RBI Governor Shaktikanta Das noted that global economic activity has slowed down and prospects have weakened further with the outbreak of Corona virus, as China is the second-largest economy and was a key player in the global supply chain.

He, however, added that some green shoots are visible in Indian economy with rabi sowing going up by 9.
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5 percent. Horticulture production has also risen to a record level in 2019-20. This is a good sign for farm incomes and rural demand. Commenting on the recently-presented Union Budget 2020, Das said that the government had sought to provide counter-cyclical support to the economy while broadly adhering to fiscal prudence.

“Monetary transmission and bank credit flows have improved, but they need to become stronger. While the macroeconomy needs further monetary stimulus, the inflation outlook continues to be uncertain,” said Das.

He also said that he expected the path of headline inflation to moderate, but given the prevailing uncertainty, it was prudent to wait for more clarity based on incoming data.

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